Three quarters of landlords do not plan to quit buy-to-let

Price growth slows, landlords reduce leverage, property supply increases

Investment news last week points to subdued property prices, with buy-to-let landlords reducing their exposure to buy-to-let mortgages. Property supply has increased for the third month running and, despite reports of 40% of buy-to-let investors throwing in the towel, three-quarters have said they won’t!

Annual house price growth has halved

According to the Halifax House Price Index, the rate of house price growth has halved in the last 12 months. Price growth peaked at 10% in March 2016, as buyers rushed to complete purchases before stamp duty increased in April.

Prices remained unchanged between February and March for the second month running. Annual house price inflation fell to 3.8% from 5.1%.

CEBR has forecast that house prices will rise by an average of 4.4% in 2017, the slowest annual growth since 2013.

Property supply increases again

New listings in London have stagnated, showing that sellers are unwilling to play the game of chasing property prices lower. However, through the rest of the country, online estate agency says that listings increased by 10.3%.

Property listings rose in 76% of towns and cities. Notable exceptions include Telford, Barnsley and Warrington.

The CEO of said that demand from buyers is still strong, and more listings are needed to meet this demand.

Landlords continue to reduce exposure to leveraging

Although leveraging is an accepted property investment strategy, landlords have reduced their exposure to debt again. The average loan-to-value ratio (LVR) is now only 35%, down from 42% in 2012.

This deleveraging has accelerated, prompted by the way that mortgage interest tax relief is changing. However, the data from Paragon also shows that:

  • Landlords spend an average of 30% of their rent on mortgage interest
  • The average investment property portfolio consists of 13 properties – unchanged since 2016
  • The average property portfolio is valued at £1.7 million
  • A quarter of landlords think their portfolio value will increase over the next 12 months, while 8% think it will decrease
  • 38% of landlords say that tenant demand is ‘growing’ or ‘booming.'
  • 46% of landlords believe tenant demand will increase over the next 12 months

Almost half of landlords plan to scale back because of tax changes

The latest landlord survey by AXA has found that 46% of landlords are considering reducing or withdrawing from residential investment property. Almost as many expect tax changes will make them worse off.

However, some headlines have sensationalised the AXA report. Even PropertyNews screams that “Almost 50% of landlords plan to quit due to the unfair tax change.” However, the report found that:

  • Only 20% have said they plan to sell all their residential property
  • 10% said they would reduce their portfolio
  • 7% are considering switching to commercial property
  • 8% expect to transfer ownership to their wife or spouse who is in a lower tax bracket (one of the 4 strategies to reduce the effects of UK property tax changes)

One West Midland landlord said that “Landlords with mortgages on their buy-to-let properties are unlikely to make much profit with the new system coming in. People like me may just decide the new system isn’t worth the hassle and sell their properties, leaving less accommodation for people to rent.”

What you can learn from last week’s investment news:

Analysing this investment news flow, we can come to several possible conclusions, including:

  • House price growth was boosted this time last year because of a technical situation (trying to beat stamp duty increases). The rapid annual growth rates we’ve seen during the last few years was always going to come to an end. However, they haven’t crashed, and look unlikely to do so. A slowing rate of house price inflation was to be expected, and in the long term will prove to be healthy for the market.
  • Although property supply has increased, demand is still high. More property is needed. It points to higher prices in the future. The slowdown in the rate of house price growth may begin to reverse in months to come.
  • Buy-to-let investors are deleveraging, and are optimistic about demand for their properties. They’re conservative in their nature, and appear to be preparing for the phasing out of mortgage interest tax relief at the higher rates.
  • While higher rate taxpayers may find themselves worse off because of the mortgage interest tax relief changes, most will be taking action to mitigate these. More than three-quarters of landlords aren’t planning to liquidate their property portfolio.

To stay abreast of all the property investment news that matters, contact one of our team today on +44 (0)207 923 6100. Ask about our newsletter. We give it to you straight. No BS. No hype.

Live with passion

Brett Alegre-Wood

Brett Alegre-Wood
April 23, 2017

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